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In Fed We Trust

infedwetrust.jpgIt's not often that anyone calls a book about the Federal Reserve "essential, lucid — and, it turns out, riveting — reading." But that's Michiko Kakatuni's take on David Wessel's "In Fed We Trust: Ben Bernanke's War on the Great Panic". The portraits of Bernanke and Geithner seem particularly useful:

Mr. Greenspan’s successor, Mr. Bernanke, along with Mr. Paulson and Timothy F. Geithner, then the president of the Federal Reserve Bank of New York (and now President Obama’s Treasury secretary), Mr. Wessel says, all “had a gut sense that the U.S. economy was overdue for a financial crisis of some sort” before the catastrophic events of last fall, but “no one at the Fed” rang “the gong and warned investors, lenders, business executives, and consumers that years of easy credit even for risky borrowers, placid markets, and shared optimism were unsustainable.”

While Mr. Wessel suggests that Mr. Bernanke was initially timid in his response to brewing problems, he gives the Fed chief credit for being “creative and bold” once he realized the risks, pushing “the Fed to places it had never gone before or at least to places it hadn’t visited since the Great Depression.” A conscientious student of that calamity, Mr. Bernanke was determined, Mr. Wessel writes, that “he would not go down in history as the chairman of the Federal Reserve who dithered and delayed during a financial panic that threatened American prosperity,” and he “adopted a new mantra: whatever it takes.”

In this book Mr. Geithner emerges as a usually cool deliberator, admired by his colleagues at the Fed for his “capacity to size up a situation and lay out options coherently and calmly.” His experience dealing with the United States government’s response to the Mexican and Asian financial crises of the 1990s, Mr. Wessel writes, taught him “a lot about crisis management and an enduring lesson: smart people solve crises one at a time and worry about dealing with unintended consequences tomorrow.”

The praise for Bernanke mirrors what seems to be the emergent conventional wisdom. The praise for Geithner's approach, however, is striking in that it could be recast as a condemnation with very little effort. Anyway, I've got this on the nightstand at home, so I'll have more to say on it soon.

(Via David Leonhardt.)

By Ezra Klein  |  July 21, 2009; 5:42 PM ET
Categories:  Books  
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Comments

When Greenspan first became Fed chairman, a lot of economists considered him a lightweight. Then, after the '87 market crash passed without laying waste to the whole country, he became revered -- and eventually oracular. I wonder whether the "conventional wisdom", which is essentially another name for those economists and Wall Stree mavens who can get the ears of a few columnists, has a deepseated need to trust and admire the chairman of the federal reserve, because the alternative would be too frightening to contemplate.

(I think the last Fed chairman who didn't have the adoration of the conventional masses was Arthur Burns, who even kept derogatory cartoons on his office wall.)

Posted by: paul314 | July 22, 2009 10:27 AM | Report abuse

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